Types of Liability

Question 1

Define Liability

Answer 1

Refers to the legal responsibility of a business towards their debts.

Question 2

Define Unlimited Liability

Answer 2

• The owner and the **business are the same entity
  -Business owners are personally responsible **for all business debts, regardless of the value

Question 3

Define Limited Liability

Answer 3

-Business and owner are seperated
-This legal protection means that business owners are only responsible for their investments in the business

Question 4

Define **Sole Trader **Business

Answer 4

Owns/Runs the business (Barber,Hairdresser)

Question 5

Advantages of Sole Trader Business

Answer 5

-Freedom, Keep all the proft
-Owner has control
-Easy/Quick to set up
-Can hire whoever

Question 6

Disdvantages of Sole Trader Business

Answer 6

-Wont benefit economies of scale
-Likely to work long hours
-Lenders may be reluctant to give them finance as its risky
-Unlimited Liability

Question 7

Define Partnership Business

Answer 7

-Owned by 2-20 people
-A partnership agreement/deed of partnership is usually prepared by partners.
-Without this document, partners may disagree who put the most capital into the business/** who is entitled to most of the profits**

Question 8

Advanatges Parntership Business

Answer 8

-Partners can bring different skills /expertise to the business
-Raise more capital
-Quick/Easy to set up

Question 9

Disadvantages** Partnership** Business

Answer 9

-Have more profits
-Disagreement
-Unlimited Liability